Rather than join the throngs of financial services companies advertising their affiliation with Apple Pay on TV, radio and in print, Discover Financial Services is communicating to customers by turbocharging its rewards program.
The money it saved on advertising instead went to providing a hefty 10% cash-back bonus and additional miles for Apple Pay transactions through the end of the year, said Mark Graf, executive vice president and chief financial officer at Discover, during a Sept. 17 presentation at the Barclays Global Financial Services Conference.
"When other partners joined Apple Pay, they did a lot of advertising around that and we decided to take a slightly different approach," Graf said.
Discover was also a late addition to the list of Apple Pay supporters. While Visa, MasterCard and American Express supported Apple Pay from its October 2014 launch, Discover which began supporting Apple's mobile wallet only last week, does not have the first-mover advantage that many other issuers enjoyed. Since Apple's wallet uses the first card enrolled as the default funding method for all transactions, Discover has to convince its cardholders to not only enroll its card with Apple Pay but also to go into the app's settings and give their Discover card the coveted top-of-wallet spot.
The card network's 10% cash-back offer is aggressive even in a rewards market that Graf described as "sporty," with many new players using rewards to lure consumers into spending more with their system.
"We will find ways to pay for that by modifying other pieces of our rewards structure," Graf said. "We didn't increase our guidance for our rewards rate for the year when we put that out there."
While rewards programs have become more competitive, consumer spending to support it may not rise to keep all programs afloat, Graf said. "If interest rates go up, some of these rewards structures may not be sustainable over the long haul," Graf added.
Discover continues to have strong partnerships with Ariba Pay and PayPal, Graf said. The card brand landed a private-label network deal with Ariba for business-to-business payments in 2013 and a partnership with PayPal for point of sale transactions on the Discover network in 2012.
"The early takeup on Ariba Pay volume has been very strong and we feel good about the projections there," Graf said. "The challenge with B2B volumes is that they don't carry the same margins as consumer volumes. It's a thinner margin, but over time we feel good about the volumes there."
Discover has had a strong relationship with PayPal in the online space, but PayPal "has not yet fully rolled out its in-store physical-presence type of acceptance model," Graf said.
PayPal did, however, announce an agreement this week with Macy's for in-store and e-commerce transactions, though in this example PayPal is using a mobile app and QR codes rather than the card-based payment system in place with Discover.